Do away with GST on services by microfinance companies: Industry’s Budget wish-list

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Microfinance industry body Sa-Dhan in its wish-list for Budget 2020-21 has urged the government to do away with levy of goods and services tax (GST) on the services provided by the sector. Highlighting the key demands, Sa-Dhan executive director P Satish said, “MFIs (microfinance institutions) offer different services to the microfinance clients and we request the government of India that Goods and Services Tax (GST) should be done away (on the services) with since it is a service to the low income segment of the population”. Sa-Dhan said the additional tax burden is currently placed on these lowincome clients which is counterproductive to the government’s policy on financial inclusion. “There is no GST on loans from banks, hence the same should not apply to loans taken from MFIs,” Satish said in the wish-list of the MFIs.

Among others, the industry expects the Budget to help in accelerating lending from the public sector banks to MFIs. “In gradual deceleration, in 2018-19, it came down to 12 per cent of overall borrowing from 22 per cent in 2017-18. We request the finance minister to bolster plans for adequate fund for PSB that will be utilised for the microfinance sector.” It has also asked for enhanced budgetary allocations to Nabard, Sidbi and their subsidiaries so as to increase the on-lending to MFIs. Financial Inclusion Fund of Rs 2,000 crore is currently accessible to commercial banks, RRBs and a few other institutions.

Since microfinance institutions (MFIs) reach out to such a vulnerable section of the served and unserved population, we request government to allow MFIs to avail this fund, Sa-Dhan said. It also asked for a special fund for the sector’s self-regulatory organisation (SRO) and said allocation of fund through the RBI to SROs will help in spreading awareness and conduct workshops for the microfinance sector. As per data by Sa-Dhan, the credit portfolio of all such lenders stood at Rs 1,99,441 crore as on September 30, 2019.

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